RBI unveils 22 measures to boost credit flow, ease home loan burden

The Reserve Bank of India (RBI) on Wednesday announced a flurry of measures — twenty two of them, to be precise — aimed at boosting credit flows to the real economy and promoting ease of doing business while lowering banks’ costs. These include a nod for banks to fund acquisitions of Indian non-financial sector companies, upgraded ceilings for loans against securities and IPO financing, and tweaks to risk weights on home loans. 

“We need to continue looking at rationalising our regulations so that the productive needs of the economy are met with the least of compliance burden, the least of cost. While at the same time, ensuring that wherever prudential measures are required, they are not compromised,” RBI Governor Sanjay Malhotra said in a press conference. 

 

Indian banks are now also allowed to fund acquisitions of non-financial entities and to finance land acquisition by special purpose vehicles, quelling a long standing demand of lenders. 

Another significant measure to bolster credit flows to India Inc was the removal of the ₹10,000 crore loan ceiling for a specific borrower by the banking system, although bank-specific restrictions cont­i­nue. Loans by a bank are capped at 20 per cent of its net worth to a particular borrower and 25 per cent to a group. 

Highlighting that bank loans to the corporate sector have fallen 10 percentage points in the past decade, Malhotra said, “At the banking system level, any borrower which was having an exposure, a credit limit of ₹10,000 crore or more from 2019 onwards, this limit was progressively reduced from ₹25,000 to ₹15,000 to ₹10,000 crore starting from 2016 to 2019.”

 

 “That has been done away because it is felt that the large exposure framework is able to take care of the needs at the individual bank level,” Malhotra added.

 

While a draft circular issued last October had proposed that only a single entity within a bank group (the bank and its group entities) can undertake a particular form of permissible business, the RBI on Wednesday decided to drop the proposed restriction on overlaps in business activities between banks and their group entities in the final guidelines, which are expected shortly.

 

“We do not want to micromanage, we believe that the banks will take a conscious, considered, balanced view depending on their needs as to how they wish to conduct their own business that is why we have just left it to them,” Malhotra said.

 

The central bank also sought to slash the cost of infrastructure financing by non-banking finance companies (NBFCs) by proposing to reduce the risk weights applicable for NBFCs’ lending to operational, high quality infrastructure projects.

 

The lending limits for borrowers to invest in stocks, including initial public offerings of equities, have been eased as well.  RBI has proposed to remove the regulatory ceiling on lending against listed debt securities and enhance limits for lending by banks against shares from Rs. 20 lakh to Rs. 1 crore and for IPO financing from Rs. 10 lakh to Rs. 25 lakh per person.

 

In a separate move, the regulator announced a timeline for banks to transition to the expected credit loss (ECL) framework from the current incurred loss framework, giving them four years to amortise the additional provision requirements. The ECL norms are proposed to come into effect from 1 April 2027 and banks will have time till 31 March 2031 to space out their provisioning requirements. 

Key reforms

• ECL framework for SCBs to be implemented from April 1, 2027
• Restriction on bank–group entity overlap removed
• Banks allowed to finance corporate acquisitions
• Withdrawal of disincentives on lending to large borrowers (system credit ≥ ₹10,000 crore)
• Regulatory ceiling removed on lending against listed debt securities

 

It has also proposed to make the revised Basel III capital adequacy norms effective for commercial banks (excluding SFBs, PBs and RRBs) from 1st April 2027. RBI will issue a draft of the Standardised Approach for Credit Risk shortly. Under the revised approach, the proposed lower risk weights on certain segments are expected to reduce the overall capital requirements, particularly for MSMEs and residential real estate, including home loans.

 

The central bank has also announced steps for further internationalising the Indian Rupee. Banks have been allowed to lend in Indian Rupees to non-residents from Bhutan, Nepal and Sri Lanka for cross border trade transactions. In addition, it has been proposed to establish transparent reference rates for currencies of India’s major trading partners to facilitate INR based transactions.